A 'Once-In-A-Generation' Opportunity

Unconventional resources represent a bright opportunity for the United States’ economic and energy future, but that is in no sense guaranteed.

A misinformed public debate about the impacts and merits of hydraulic fracturing in particular and the oil industry in general threatens that future, so it greatly depends on the industry’s ability to address ongoing controversies and arrive at mutually-beneficial compromises.

That’s according to David S. Gee, senior partner and managing director of Boston Consulting Group.

Back in 2015, Gee, along with Michael E. Porter and Gregory Pope, compiled a 72-page report for Harvard Business School and BCG, entitled “America’s Unconventional Energy Opportunity: A win-win play for the economy, the environment, and a lower-carbon, cleaner-energy future.” It was an economic, environmental and climatic assessment of unconventional gas and oil development in the United States.

“Unconventional gas and oil resources,” he said, “are perhaps the single largest opportunity to improve the trajectory of the U.S. economy, at a time when the prospects for the average American are weaker than we have experienced in generations.”

Gee believes that while much has changed, much has not, and even that which has, may not change the conclusions of the original report. Gee’s fear now, as it was then, is that a divisive and often misinformed debate about unconventionals – and this comes from both business and environmental groups – is, as he wrote then, “jeopardizing a once-in-a generation opportunity to change America’s economic and energy trajectory.”

The report, as well as the update, is motivated, he said, by that gridlock which is threatening America’s unconventional energy development.

“The (original report) came out when oil prices had collapsed, and there was a line of reasoning that the study we did back then was no longer valid,” he explained.

And while Gee and his team are still in the process of updating the report for the conference, he insists that the findings, in fact, are still on the money.

Buckets of Caveats

“There is no inherent trade-off between environmental protection and company profitability,” he said.

There are, however, in his words, “buckets” full of caveats to that statement.

That first “bucket” pertains to the economic impact.

“This is still massive,” he said, but the nature of it has shifted because, while the oil industry continues to drill a lot of wells, even though the prices are a lot lower, the wells are much more efficient. That’s the good news.

Extended reading

Unconventional resources represent a bright opportunity for the United States’ economic and energy future, but that is in no sense guaranteed.

A misinformed public debate about the impacts and merits of hydraulic fracturing in particular and the oil industry in general threatens that future, so it greatly depends on the industry’s ability to address ongoing controversies and arrive at mutually-beneficial compromises.

That’s according to David S. Gee, senior partner and managing director of Boston Consulting Group.

Back in 2015, Gee, along with Michael E. Porter and Gregory Pope, compiled a 72-page report for Harvard Business School and BCG, entitled “America’s Unconventional Energy Opportunity: A win-win play for the economy, the environment, and a lower-carbon, cleaner-energy future.” It was an economic, environmental and climatic assessment of unconventional gas and oil development in the United States.

“Unconventional gas and oil resources,” he said, “are perhaps the single largest opportunity to improve the trajectory of the U.S. economy, at a time when the prospects for the average American are weaker than we have experienced in generations.”

Gee believes that while much has changed, much has not, and even that which has, may not change the conclusions of the original report. Gee’s fear now, as it was then, is that a divisive and often misinformed debate about unconventionals – and this comes from both business and environmental groups – is, as he wrote then, “jeopardizing a once-in-a generation opportunity to change America’s economic and energy trajectory.”

The report, as well as the update, is motivated, he said, by that gridlock which is threatening America’s unconventional energy development.

“The (original report) came out when oil prices had collapsed, and there was a line of reasoning that the study we did back then was no longer valid,” he explained.

And while Gee and his team are still in the process of updating the report for the conference, he insists that the findings, in fact, are still on the money.

Buckets of Caveats

“There is no inherent trade-off between environmental protection and company profitability,” he said.

There are, however, in his words, “buckets” full of caveats to that statement.

That first “bucket” pertains to the economic impact.

“This is still massive,” he said, but the nature of it has shifted because, while the oil industry continues to drill a lot of wells, even though the prices are a lot lower, the wells are much more efficient. That’s the good news.

The bad?

Margins have been squeezed. But even that isn’t the end of the story.

“On the other hand, the lower prices,” he said, “are a bigger boon to customers and end users.”

The next “bucket,” he said, is the environmental impact at the local site level.

This includes matters of methane, water disposal and the hydraulic fracturing itself. Here, Gee said, the goal is what he calls a “win-win” situation for both environmentalists and those in the industry.

“If you actually consistently apply mutually-agreed-to standards, you can do this very safely and in an environmentally-appropriate manner,” said Gee.

This is true, even though the dynamic of the discussion has changed.

“Since this work had been studied originally” – and this was primarily done on the subject of hydraulic fracturing – “the issues have emerged on the seismicity, which was just becoming an issue, as well as the issue of methane,” he said.

And here, Gee, again reiterated the importance of compromise – a topic he said will be emphasized in Houston.

“We will talk about how the same basic approach applies and that if you, again, take reasonably agreed-upon standards,” all will benefit.

He also believes this is exactly the way the industry should go.

The question, of course, on the other side of the debate, is whether environmental groups, especially with their distrust of the Environmental Protection Agency under the current administration, will buy into the standards and participate in the formulation of these agreed-to standards.

“I think – and this an ‘I think,’ not an ‘I know’ – that on issues like seismicity and methane, you can get to win-win scenarios. The industry will complain a little bit about the cost, the environmentalists will complain a little bit about the efficacy of the standards, but you can kind of get something that everyone will be equally satisfied … or equally dissatisfied … with,” said Gee.

The biggest gap in agreement, Gee said, is within the third “bucket.” It’s where the disagreement was before, where it is now, and where, do doubt, it will continue: the climate.

The question, as he sees it, is whether natural gas should be considered a bridge fuel or whether the industry should move right to renewables.

His answer?

“We need to refresh the analysis,” he said.

The concern among many in the industry is that if the industry makes the commitment to building the infrastructure needed for gas, the cost would prohibit it from ever moving on.

“We found that’s not true,” said Gee.

His assessment is that even if the infrastructure is built, the economics indicate that the renewables will be so cheap that they will negate those costs. With that in mind, he said it’s still cheaper in the near term to build that infrastructure. As proof, he said, both gas and renewable prices have come down more precipitously since he and his team first made their calculations, and the trend will almost certainly continue.

The End of Coal?

On the subject of coal, Gee was succinct about its future and why, in fact, it has no significant part to play in the future.

“Yeah, it’s gone,” he said.

“It’s just a question now of when the coal plants hit some triggering event, of needing some capital infusion, be it some big back-end scrubber or a revamp. Even the larger, more efficient coal plants can’t survive that economically,” he explained.

But what of the interest, the renewed passion behind coal coming from some sectors, especially the White House?

Ultimately, he said, what will end coal is reality, and it’s only a matter of time.

“The economics are the economics,” he said.

In Houston, Gee also will spend some time on what he calls the “divisive dialogue,” for which both sides are to blame. He points to the recent debate around pipelines as one in which neither side compromises.

As for shale, though, he insisted, “If you do it right, with a set of standards, it’s very, very safe.”

“Larger producers are much better at compliance than the smaller operators,” said Gee.

It is these smaller operators’ safety records, he believes, that have skewed the overall results.

“Not perfect, by any means,” he quickly added, “but better.”

Asked whether the various environmental groups are happy with the compliance of these larger groups, he laughed.

“I don’t know if I’d go that far, “ he said, “but they are acquiesced to it. “’Happy’ would not be the first word that comes to mind.”

Every issue gets conflated, which means every issue is tougher to solve.

“My bucket number three is the one where there are the disagreements and so that clouds a little bit my bucket number two.”

He wants “a clear line” between the two buckets.

“The battles on seismicity have come up. There’s some denial by the industry,” but he said the science is just about settled.

“The facts surrounding the water disposal causing seismicity are pretty compelling, but then how you mitigate that is not that expensive,” he noted.

That’s where agreement on standards is possible.

“But you need to create the right forum to do that; otherwise, people are entrenched in their own talking points,” Gee added.

For now, one fact is clear, he said: “We do need to move forward with workable standards on methane and waste-water disposal.”

As to whether there’s hope about the divide, especially as it relates to the climatic issues in Bucket No. 3, he’s not sure.

“It’s almost theological, not political.”

David Gee will present “Americas Unconventional Energy Opportunity: An Update” during the AAPG Global Super Basins Leadership Conference at the Hilton Americas Hotel in Houston to be held March 27-29.